This document outlines key topics in foundations of finance including: - The meaning and definition of finance as the system of creating, circulating, and managing money as a medium of exchange. - The scope and objectives of financial management including investment decisions, financing decisions, and dividend decisions. - The importance of financial management in strategic planning, decision making, controlling, and maximizing profits. - Several principles of finance such as the risk-return tradeoff, time value of money, importance of cash flow over profits, benefits of diversification, influence of taxes on decisions, and importance of liquidity.

1. FOUNDATIONS
OF FINANCE
Presenter Name
Dr. Aparna Pavani
Siddhabattula

2. AGENDA
Meaning & Definition of
Finance
Financial Management –
Scope, Objectives
FM – Approaches &
Importance
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3. Introduction
Meaning: The system or study of creating, circulating
& managing money.
Definition:
The Encyclopaedia Britannica defines Finance as”
the act of providing the means of payment. It is a
medium of exchange”.
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4. TYPES OF
FINANCE
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5. FINANCIAL
MANAGEMENT
Scope & Objectives

6. Financial Management
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• Financial Management means planning, organizing, directing and controlling the financial
activities such as procurement and utilization of funds of the enterprise. It means applying general
management principles to financial resources of the enterprise.
• Finance is the managerial activity which is concerned with planning and controlling of the firms
Financial Resources.
• Finance is needed to promote or establish business, acquire fixed assets, make necessary
investigations, develop product keep man and machines at work ,encourage management to make
progress and create values.
• According to Solomon “Financial Management is concerned with the efficient use of an important
economic resource, namely capital funds.”
• “Financial management is the application of planning and control function of the finance
function”- Howard and Upton

7. Scope of FM
• Traditional Approach – Before
1950’s – Raising of Funds.
• Modern Approach – After 1950’s –
Scope has been enlarged to
Investment, Financing & Dividend
decisions.
• Globalisation Approach – During
1970’s new milestones like
introduction of IPO’s, ADR’s, GDR’s,
FDI, FPI, Derivatives, Asset &
Portfolio Management, SEBI,
Financial Restructuring, International
Benchmarks and the like.
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8. Scope of FM (Contd.,)
• The nature of financial decisions would be clear when we try to understand the operation of a firm. At
the very outset, the promoters makes an appraisal of various investment proposals and selects one or
more of them ,depending upon the net benefits derived from each as well as on the availability of funds.
• Investment Decisions - What assets should the company hold? This determines the left-hand side of the
balance sheet. these decision are concerned with the effective utilization of funds in one activity or the
other. The investment decision can be classified under two groups- (i) Long term investment decision
(ii) Short term investment decision
• Financing Decisions - How should the company pay for the investments it makes? This determines the
right-hand side of the balance sheet. it is also known as capital structure decision. It involves the
choosing the best source of raising funds and deciding optimal mix of various source of finance.
• Dividend decisions - What should be done with the profits of the business? The dividend decision is
concerned with determining how much part of the earning should be distributed among the share holders
by way of dividend and how much should be retained in the business for meeting the future needs of
funds internally.
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9. Objectives of Financial Management
• Profit earning is the
main aim of every
economic activity. Profit
maximization simply
means maximizing the
income of the firm .
Economist are of the
view that profits can be
maximized when the
difference of total
revenue over total cost
Maximization of
wealth
• According to prof.
Solomon Ezra of stand
ford university , the
ultimate goal of
financial management
should be the
maximization of the
owner's wealth. The
value of corporate
wealth may be
Maximization of
profits

10. Importance of FM
Strategizin
g
•Leaders
need
insights into
current
performanc
e for
scenario
planning
Decision -
Making
•Helping
business
leaders
decide the
best way to
execute on
plans by
providing
•Controllin
g
• Ensuring
each
department
is
contributing
to the vision
and
operating

11. Importance of Finance in Modern World
•Financial Problems
•Wealth
Maximization Goal
•Allocation of Funds
•Maximizing
Earnings
•Cost of Present &
Future Funds
• Allocation of

12. Principles of Finance
• Principle 1: The Risk- Return
Trade- Off
• Saving allow for more future
consumption.
• Borrowers pay...
• Principles 2: The Time Value
Of Money
• Money has a value with respect
to the time.
• Money received...
Principles 3: Cash- Not Profit –is
King
• We should use cash flows to
measure the benefits that acc...
• Principles 4: Diversification
Reduces Risk
• Don’t put all your eggs in one
basket.
• To diversify ,...

13. Principles Of Finance
• Principles 5: All Risk Is
Not Equal
• Some risk cannot be
diversified away.
• Principle 6: The curse
of Competitive
Investment Markets
Principle 7: Taxes Bias
Business ecisions
• Taxes influence the
realized return of
investments.
• Principles 8: Importance
of Liquidity
• Have funds available for
the unexpect...

14. Summary
https://youtu.be/nV555JcmQYQ
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https://youtu.be/nV555Jc
mQYQ?t=36

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THANK YOU
Dr. Aparna Pavani Siddhabattula
aparna.pavani@alliance.edu.in